Last Thursday morning at Redway Elementary, the Southern Humboldt Unified School District's board of directors elected to proceed with another round of bond sales. This move is in defiance of a recent letter from the California Department of Education and State Treasurer urging school districts to put a moratorium on CAB sales.
In a letter dated January 17th, State Superintendent of Public Instruction Tom Torlakson urged California school districts, "...not to issue CABs until the legislature and the governor have completed their consideration of this year's proposals to reform the CAB issuance process by improving transparency and protecting taxpayers against exorbitant debt service payments."
Twenty-four hours after Thursday's meeting, California Assemblymember Ben Hueso, of Chula Vista introduced Assembly Bill 182, which will seek to regulate CAB school bonds by enforcing a 4-1 maximum debt service to principle ratio. AB 182 also includes several provisions to improve transparency in the bond sale process and prevent the issuance of CAB bonds under municipal code.
CABs recently became controversial after a series of articles from news agencies around the state (including the Redwood Times, Times-Standard, Lost Coast Outpost, North Coast Journal and Arcata Eye) highlighting Capital Appreciation Bonds that had school districts like the McKinleyville Union School District paying more than $71 million dollars total on just $7 million borrowed -- a debt repayment ratio of 10.2 to 1.
During recent debates, it's been pointed out that CABs can be used responsibly, with reasonable interest rates and debt-to-service ratios. In a recent presentation to the SHUSD board (before Torlakson's letter went out) Greg Isom of Isom Advisors told trustees that CABs are not the enemy.
"Generally, how you compare financing for a district is the total repayment, not whether or not there's a CAB involved. If you were to buy anything, like a home or a car, you judge that loan on the total payback," Isom told the Redwood Times in a recent interview, "and payback for Southern Humboldt is roughly 3 to 1."
For Humboldt County auditor Joe Mellet, the guy who tracks the numbers on school bonds and parcel taxes, that's an acceptable debt service ratio, even if he's not fond of CABs.
"In general I wish people would stay away from CABs, but as long as the overall package is comparable, it's up to the school board," Mellet says. "If they can keep it down to 3 to 1, I think it's responsible."
When asked about the consequences of going forward with the bond sale despite Torlakson's letter, Mellet didn't seem to think it was going to create any legal or administrative problems.
"That [letter] is just their personal opinion. It doesn't have the power of law," Mellet said, "so the school district is free to do what they please at this point. As long as what they're doing right now is legal, I don't see any adverse consequences down the line. But the attorney general issued that opinion for a reason. They want school districts to be very careful."
But the board of trustees at the Southern Humboldt Unified School District feel that their bond financing has been done in an ethical, responsible manner that's fair to local taxpayers - and they're not overly concerned with the recent controversy. Moreover, postponing the bond issuance could lead to postponing the upgrades and modernizations planned for SHUSD campuses this summer - like the new gym facility at South Fork.
"We have projects that we're planning to do this summer," superintendent Catherine Scott told the Redwood Times in an interview just before deadline. "And if we can't issue the bonds we'll have to put those projects on hold."
"Right now, interest rates are at a near record low," Scott said during Thursday's meeting with the trustees. "My opinion is that we should not be punished, and our taxpayers should not be punished, because other districts didn't act appropriately. If we wait, we could actually be costing [local] taxpayers more money."
"We've been fiscally responsible," said newly re-appointed board president Thomas Mulder.
"I agree," said Dennis O'Sullivan, "we already authorized this in November."
No action was taken on this item despite a lively discussion on the matter during last week's meeting. The board had previously given direction to authorize the $2.2 million round of bond sales from the CAB approved by voters in 2010 under Measure L - and they opted to continue on as planned, despite the recent controversy over CAB funding and the state's letter urging school districts to place a moratorium on CAB sales.
"I do need to say that there will be fallout for this. There will be news articles about this, I'm sure, if we go forward with this. But if we're willing to take the heat, let's go for it," said Scott.
The board's response was optimistic, and trustee Lehman advised Scott to write a letter to the editor for local publications to address any public concerns. The next meeting of the Southern Humboldt Unified School District is scheduled to take place Feb. 14, Valentine's Day.